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On our latest episode of Better Yet, Better Trucks’ fireside chat series that showcases visionaries and innovators in the parcel space, Better Trucks’ VP of Growth and Operations Josh Fredman sat down to talk with Josh Taylor, Sr. Director of Professional Services at Shipware, about pricing in the parcel industry, why rate changes are happening, and where they expect the market to go from here.
Then, they moved onto dynamic pricing and its role in the industry now and going forward. The conversation went on to cover peak predictions from both Josh Taylor and Josh Fredman and how the multi-carrier movement might play into this year’s peak season.
Host Dan Ptak asked about how 2023’s pricing and volumes have panned out compared to how companies thought things were going to go.
“Coming into the start of the year, you're right, everybody knew that volumes were going to be down a little bit, that there was going to be some capacity. What made this year different though, was the potential for a UPS strike,” said Taylor. “We work with hundreds of shippers, and we didn't see anybody go from FedEx to UPS. Anybody that switched carriers was going in the other direction,” he finished.
Fredman added to the conversation, “At high level, we saw some volume changes that we didn't expect. We had thought last year's volume would be kind of the base. And with some of the macroeconomic pressures that we've seen, the increase in interest rates makes it seems like customer propensity to purchase has maybe gone down just a tad, and that's created pressure on the bottom line.”
“Shippers are becoming even more price conscious when making decisions about what carriers they're going to use. And for folks like us, that's an area of opportunity to differentiate ourselves, to provide simple pricing, to provide better quality than what they might be seeing with others,” Fredman added.
“From my angle, we were hoping to see as many shippers as possible trying out these newer services, services they weren't familiar with as they were getting nervous about UPS,” Taylor went on to say.
Dan dove into the UPS strike next, with the agreement between UPS and teamsters occurring just the day before filming. He asked about what happened and what it means for parcel shipping going forward.
“When people see that number, they're expecting another big rate increase, and they're right. There's no reason for UPS not to, because people are expecting it and going to be willing to pay it to a certain amount. It really impacts the smaller shippers the most, the ones that don't have any rate cap protection,” Taylor pointed out.
When Fredman dug into how the rate increases are actually spread across customers, Taylor said, “UPS and FedEx don't explain it, really. They just give you that average 6.9% and let it go. So it's tough if you're a shipper and you don't have access to good data analytics capabilities; it's really hard to budget for what that increase is going to do.”
Dan asked both executives about how customers can weigh the benefits of shifting some volume to a regional carrier like Better Trucks, explaining how volume commitments might make it a careful balancing act to pull volume away from the duopoly.
Josh Taylor answered, “There's three main ways that you can do it. I mean, the least disruptive is to just start siphoning off all the growth. Sometimes your carrier rep will complain to the shipper, ‘Hey, you know, we don't like these packages.’ Or, ‘You know, this type of package is expensive for us.’ That's kind of the second way, if you can approach it from a collaborative way, you know, ‘Hey, your network isn't built for these packages, so I'm going to pull those packages away. That should improve your margin, even though it reduces your volume. And I'll go find another carrier that is interested in taking those.’ So, you need to be sure if you do that, they adjust your commitments appropriately. But it's a way to try and find a win-win, or at least a win, and not a loss for the carrier.”
Then, Dan pointed Taylor & Fredman towards dynamic pricing and where it fits into the industry now.
Taylor stated that dynamic pricing is starting at FedEx, saying, “FedEx has had a program called the Great Rates program. And it's only for international packages, but it allows small shippers to call in and get a spot quote to fill up empty space within their planes. And when there is that empty space, it is really hard to beat that rate. That's kind of the beginning of the carriers introducing dynamic pricing.”
“At Better Trucks, we look at dynamic pricing in a couple of different facets–Primarily from a discounting standpoint. If we're able to achieve additional efficiencies and better optimization, better density, then we want to share that savings with our clients because we've become more efficient. And why not pass that along? That’s just core to our philosophy. I think that's really important. I think that there's also an aspect to dynamic pricing that can drive reliability through a network,” Fredman added.
Dan asked Taylor & Fredman what it would take to get shippers to be willing to make the change to dynamic pricing.
“We're trying to build the Kayak of the airline industry. If you're going to ship a package and it's going from Chicago to New York, as an example, you have all different options to choose from and based on different inputs, those prices are all going to be a little bit different. The transit time is going to be a little bit different. There's going to be something that's different about that service offering,” answered Fredman, referring to how Better Trucks’ dynamic rates are calculated.
Taylor chimed in with, “You talked a little bit about how balancing demand on your assets benefits the carrier, right? If the assets in your network are being utilized roughly the same every day, then it's really easy to forecast, to staff for. It's very, very efficient. The carrier hopefully benefits just through improved efficiency, and doesn't even have to raise rates in order to see a gain there.”
Dan brought up peak season, asking speakers what they expected to see from peak season this year as far as pricing.
Taylor pointed out that dynamic pricing plays into this year’s peak season, saying, “This plays in with dynamic pricing as well, right? This is one of the more recent applications of it. The carriers measure your number of shipments that you send out in a given week versus a baseline, and then your rate adjusts accordingly, right? I think shippers can expect those peak surcharges to become more and more expensive with the carriers. So, both UPS and FedEx are hurting on volume a bit, and so I do expect them to get more aggressive with discounts, offering better discounts, but they'll make up for that on the backend with large rate increases and large mid-year rate increases to things like peak surcharges.”
Fredman had this to say about his predictions for this peak season: “I think from a pricing aspect, you'll probably see some peak surcharges. I don't quite know what that looks like at other carriers, but I do think that it's very important that clients and customers get those packages when they say they're going to arrive,so if people (carriers) are not performing, then shippers might be willing to pay a little bit more to make sure they ensure that quality.”
Dan brought up some factors that might help shippers have more confidence in the multi-carrier movement to encourage them to explore new options.
“A lot of people have multiples of their monthly volume going out in November and December. So, when you've got a ton of volume like that, it can become pretty easy, even very wise, to partition off some of that and try it on another carrier. There’s risk in staying with a single carrier like UPS or FedEx and just hoping that they're going to treat you right the whole way through. They're thinking about their entire network, right? And they're trying to balance assets, they're trying to keep everything flowing, and that doesn't always translate to what's best for an individual shipper,” responded Taylor.
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